Google's Digital Book Settlement Comes Under Fire by DOJ

Since 2005, search giant Google (GOOG) has been maneuvering its way toward a big prize: the right to make millions of books, both in and out of copyright, available digitally online. That ambitious plan ran into an immediate roadblock when the Authors Guild cried foul: If you want to use the books, it asserted, the authors have to get a piece of the action.

A lawsuit ensued, but eventually, in October 2008, a settlement was reached. Then in September 2009, with the agreement nearing final approval, the Justice Department jumped in, requesting a host of changes. The parties came back with an amended settlement agreement, and it looked like Google's digital library was at last on course to becoming a reality.But on Thursday, the Department of Justice, in a 31 page opinion, questioned whether the latest revision of the agreement between the Authors Guild and the Association of American Publishers and Google is valid. The settlement between the organizations representing the book industry and the search company includes rules for payment for work covered by copyrights, and also for so-called "orphan" books whose rights-holders can't be identified. The program provides for 25% of the money Google collects on the orphan products to go to an attempt to find the rights-holders to the content.

At the core of the Justice Department concerns is the issue of whether the two organizations representing authors and publishers have the right to speak for their entire industry. The opinion from Justice states: "Although the United States believes the parties have approached this effort in good faith and the ASA [Amended Settlement Agreement] is more circumscribed in its sweep than the original Proposed Settlement, the ASA suffers from the same core problem as the original agreement: it is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the Court in this litigation. As a consequence, the ASA purports to grant legal rights that are difficult to square with the core principle of the Copyright Act that copyright owners generally control whether and how to exploit their works during the term of copyright. Those rights, in turn, confer significant and possibly anticompetitive advantages on a single entity -- Google."

The U.S. District Court in New York may rule on the agreement on Feb. 18 at a fairness hearing, and the Justice Department's opinion could weigh on the judge's view. According toThe Wall Street Journal, "Google reached the settlement in 2008, agreeing to pay $125 million to establish a registry to allow authors and publishers to register their works and get paid when their titles are viewed online." Last November, the representatives of the authors, publishers, and Google submitted an in-depth plan to settle outstanding disputes among the parties. That plan is what the Justice Department is questioning now. Justice said it was still willing to work with the groups to find an acceptable resolution.

In some ways, Google's effort to get millions of books online can be seen as the search company's counter-move to actions by Amazon (AMZN) and Apple (AAPL) to capture the audience for digital books. If readers can download books from Google, they may decide, in some cases, to avoid the e-book fees charged by the firms that sell e-reader devices.

If the court finds the Justice Department's concerns valid, Google will have a long way to go before it achieves the resolution it needs to bring its digital library plan to fruition.